Recession continues to vex Birmingham’s small banks

More than half of small banks in the Birmingham area reviewed by the Birmingham Business Journal have been unprofitable so far in 2009.

Only three out of eight community banks turned a profit in the first six months of 2009 as troubles in the banking industry continue to eat away at their earnings, according to public records.

And three other banks on the roster have not earned money in more than a year: New South Federal Savings Bank, CapitalSouth Bank and Nexity Financial Corp., which are all under federal orders by bank regulators to shore up their balance sheets.

CapitalSouth Bank recorded $37 million in net losses through the second quarter ended June 30, versus $25 million in net losses during the same period last year. The bank has been hit by rising loan defaults in its Florida franchise.

Nexity Financial Corp., a provider of services for community banks, posted $3 million in net losses year-to-date, compared with $1.4 million in losses around the same time last year.

Nexity President David Long said the bank is improving its performance. “We’re continuing to navigate through this current economic environment and seeing that progress is being made,” he said.

New South reported $55 million in net losses through the quarter, compared to a net loss of $4.5 million a year ago.

A number of other community banks were also in the red.

Red Mountain Bank, also under federal orders by its regulators to overhaul its operations, reported a loss of $1.8 million. Last year, the bank made $266,000 in profits.

Red Mountain CEO Mike Washburn said the bank was hit with a $1.7 million write-down on stocks it owned with Silverton Bank, an Atlanta-based bank that failed earlier this year. The bank also paid out $180,000 for an assessment charge by the Federal Deposit Insurance Corp. to help replenish its insurance fund to cover deposits at failed banks.

While the bank has been hit by problems in the industry, Washburn said he is optimistic the economy will turn around soon.

“We’re starting to see some signs of recovery and hopefully we’ll see those continue through the end of the year,” he said.

SouthCity Bank, one of the newest banks in the local market, posted $267,000 in losses year-to date – significantly lower than $876,000 in losses about six months after it opened its doors.

The bank’s earnings were hit by an increase in loan loss reserves of $162,000 and a $50,000 assessment fee to the FDIC, said SouthCity CEO Elam Holley.

Through the second quarter, the bank’s loan portfolios are showing slight stress. More than $1.9 million of its loans were between 30 and 89 days past due, according to its financial statements.

Previously, the bank did not have any past due loans on its books since it opened amid the subprime loan crisis.

While the company beefed up its loan loss reserves through the second quarter, Holley said the increase wasn’t because of past due loans, but because the bank made $13.2 million worth of loans in the second quarter.

“We’ve had a steady growth increase in loans and new business as well, he said. “You would expect us to put aside more money for our loan loss provision.”

Three small banks remained in the black through the second quarter: First Commercial Bank, SouthPoint Bank and Alamerica Bank.

First Commercial Bank’s net income slid 33 percent to $10 million, versus $15 million during the same period last year.

CEO Nelson Bean said the bank has been able to stay profitable by managing expenses.

To help save money, the bank consolidated about 15 of its back-office jobs and has been “cautious” to fill any new positions when they come open, he said.

SouthPoint Bank brought in $18,000 in profits through the second quarter, a drop from $247,000 in profits last year and Alamerica Bank earned $359,000 in the latest quarter, down from $900,000 a year ago.